2015 (1) TMI 522 - HC - Income Tax

Commission paid on domestic sales - unreasonable and excessive expenditure - Held that - The assessee had taken a positive stand that he had paid commission for sourcing of raw material etc. The Assessing Officer, however, did not carry out any inquiry and by summarily holding that the assessee has not been able to place on record any confirmation, disallowed ₹ 92.00 lacs allegedly paid on account of commissions. ITAT has merely restored the matter to the assessing officer for examining the matter afresh by reference to the identity of the recipients and the nature of transactions said to be commissions paid by the assessee. Thus find no error of jurisdiction much less of law that would enable us to hold in favour of the revenue or to hold that the discretion exercised by the Tribunal is perverse or arbitrary. - Decided against the revenue. Dis allowance u/s 14A - Held that - Alleged interest received by the assessee under Section 36(I) (iii) of the Act, the Assessing Officer has by a sleigh of hand made an attempt to place this income under Section 14A of the Act. Admittedly the investment was made in the year 1996 and though the assessee may have received interest and dividend at one stage but for the last over a decade M/s HMGV is before BIFR and has not been paying any interest to the assessee. The investment as is apparent from the facts was made as a business expediency to procure raw material manufactured by M/s Hindustan Max GB Ltd. The Income Tax Appellate Tribunal, therefore, rightly deleted the addition made by the assessing officer, under Section 14A of the Act. - Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 36(1)(iii) of the Income Tax Act.
2. Commercial expediency in advances made to a company.
3. Granting relief on commission paid on domestic sales.
4. Applicability of Section 14A on investments.
5. Tax treatment of interest and dividend received on investments.

Interpretation of Section 36(1)(iii) of the Income Tax Act:
The High Court addressed the issue of whether the Tribunal correctly relied on Section 36(1)(iii) without considering the assessee's borrowing and advancing money. The Court found that the Tribunal's decision was appropriate, emphasizing the need for a thorough examination by the assessing officer regarding commissions paid by the assessee.

Commercial expediency in advances made to a company:
Regarding the advances made to a company for commercial expediency, the Court noted that the Tribunal rightly considered the business purpose behind the investments and the financial constraints faced by the company. The Court upheld the Tribunal's decision to delete the addition of a specific amount, emphasizing the business expediency aspect.

Granting relief on commission paid on domestic sales:
The Court analyzed the relief granted on commission paid on domestic sales and found that the Tribunal's decision to remit the matter to the assessing officer for further examination was appropriate. The Court highlighted the need for a detailed inquiry into the commissions paid by the assessee to ensure correctness, rather than focusing solely on the quantum.

Applicability of Section 14A on investments:
Regarding the applicability of Section 14A on investments made by the assessee, the Court discussed the investment in shares and the interest and dividend received. The Court agreed with the Tribunal's decision that the investment was made for business expediency and, therefore, fell outside the purview of Section 14A.

Tax treatment of interest and dividend received on investments:
The Court further elaborated on the tax treatment of interest and dividend received on investments, emphasizing the business expediency behind the investments and the financial constraints faced by the company. The Court upheld the Tribunal's decision to delete the addition made by the assessing officer under Section 14A, ruling against the revenue on this issue.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decisions on various issues related to the interpretation of tax laws and the tax treatment of specific transactions and investments.